I agree that the current fiscal rules system set up by the previous Conservative Government, and extended and modified by this Government, cannot possibly achieve its main aim, which should be to control debt better. Whether there is a five-year target or a three-year target does not really make much difference. Some people thought that that was a welcoming tightening, but the underlying truth is that year 3 or year 5 never comes and there is no pressure on the Government to make sure that they meet it. By the time they get to that year, it is no longer year 3, so it no longer has a biting target. That is clearly absurd.
I also agree with the committee saying that the OBR’s role has to be that of an independent forecaster and that the Government should be able to talk to it but should not be bound by it. Obviously, a good Government would wish to explain why they disagreed, or should explain how they intend to handle debt and deficit if they do not like the figures that are being produced.
In 2010, when this family of targets first started after the banking crash and the explosion of debt and expenditure over the period of that crash, public spending—that is, total managed expenditure—was £760 billion. This year, according to the latest forecast, it will be £1,449 billion. That is an increase of 90% over the years. I cannot remember a year, until we got to a Labour Government, when I was not told that we were cutting public spending, but spending is up 90% in cash terms. The inflation check from the Bank of England says that there was 62% inflation over that period, so there was a fairly substantial real increase, which occurred in most years. Some individual programmes were cut, and some priorities could not be pursued, but it is difficult to see that we have had a rigorous set of controls over either spending or borrowing.
If we look at where these targets came from, ultimately, they are derived from our Maastricht targets, which we were meant to obey when we were a member of the European Union. Noble Lords may remember that there were two treaty-driven targets. We were to keep debt at 60% of GDP or lower. Every country bar one, I think, broke that—including the United Kingdom—so it was transposed into something saying, “As you are over 60%, you should start getting your debt down towards a 60% target”; that was transformed into our fiscal rules after we left. There was also the 3% running deficit ceiling, which, again, has been often broken; it was broken by us in our period of membership. This Government have revised and tightened that by saying that there should still be a 3% deficit ceiling, but only to allow 3% of GDP borrowing for capital purposes, and that the aim should be to have a current balance. That is a good amendment to a target that does not work.
Where one needs to go from here is to say, as the committee does, that we are close to running out of money—and the people who lend it to us are close to running out of patience—for us to carry on spending at the rate we are doing. We have had three very big spending increases over the past 20 years: over the banking crash, with a big increase in debt; over Covid; and post Covid. I do not think that enough was done to control the spending coming out of the Covid exceptional expenditure; the extra borrowing was complicated, with a massive programme of quantitative easing. We then had, of course, a very substantial policy decision to go for more spending and more borrowing by the incoming Government in 2024.
I think that we would be much better off if, on a cross-party basis, we could agree on two overarching aims for the UK economy, based on one of our targets at the moment and some of the American experience. We should have as our aims 2% inflation and 2% growth, so that all policy and Bank of England considerations recognise that there can be trade-offs between those two, and we should embed the 2% inflation target on the Government as well as on the Bank of England, because inflation in public sector costs is one of the main forces of inflation at the moment; that should be taken much more seriously by the public sector.
In the brief time I have, I want to mention two expensive quirks in our figures, which I have highlighted and in which I would like other people to get interested; I find them fascinating, and they might be of use to those conducting public policy. The first is that Rachel Reeves made a decision, which I and my party condemned as being anti-jobs and anti-vacancies, to increase national insurance. The curious financial thing about it was that, of course, the bulk of the national insurance revenue has to be paid into the National Insurance Fund. That is now accumulating a surplus of £12 billion extra each year and has a surplus of £100 billion already, so I am not quite sure why she wanted a bigger surplus in the fund; it has to be lent back to the Government at the base rate.
The second funny money is the dreadful situation with the ownership of bonds by the Bank of England. The latest OBR figure says that the losses will come down a bit: it now thinks that, from 2022, when the losses started, until 2033, the losses will be £228 billion. Can we not get that figure down a bit?